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OFG Bancorp Reports 2Q17 Results


OFG Bancorp (OFG) today reported results for the second quarter ended June 30, 2017.

2Q17 Highlights

  • Net income available to shareholders increased. OFG reported $13.6 million, or $0.30 per share fully diluted, compared to $11.7 million, or $0.26 per share fully diluted, in 1Q17 and $10.9 million, or $0.25 per share fully diluted, in the year ago 2Q16.
  • Puerto Rico municipality exposure reduced. OFG opportunistically sold a $38.0 million performing term loan with a municipality, resulting in a $4.3 million pre-tax loss. The sale reduced OFG’s exposure to this sector by approximately 27% from March 31, 2017, to $140.8 million after July payments.
  • Balance sheet de-levered further. OFG unwound a 1.48% $100.0 million repurchase agreement, in line with its strategy to reduce borrowings. Related to this, OFG sold $166.0 million of mortgage backed securities (MBS). These transactions resulted in a tax-advantaged gain of $6.9 million.
  • Effective tax rate optimized. OFG now forecasts its 2017 effective tax rate (ETR) to be 29.15% as compared to its previously stated 38% estimate. The new rate is similar to its 2016 rate and resulted in a $2.1 million beneficial adjustment to estimated income tax in 2Q17.
  • Net interest margin (NIM) improved. Due to a significant reduction in the cost of borrowings and higher yields on variable rate commercial loans and on cash, NIM increased 8 basis points from 1Q17 to 5.18%.
  • Credit quality and major performance ratios remained solid. The non-performing loan and total delinquency rates fell to the lowest levels in the last five quarters. Return on average assets was 1.09%, return on average tangible common stockholders’ equity was 8.01%, and the efficiency ratio was 56.49%.
  • Capital buildup continued. All major capital metrics advanced compared to the preceding and year ago quarters. Tangible book value per common share at $15.51 was up 1.2% and 3.7%, respectively, while tangible common equity ratio at 11.09% was up 43 and 117 basis points, respectively.

CEO Comment

José Rafael Fernández, President, Chief Executive Officer, and Vice Chairman of the Board, commented:

“OFG’s 2Q17 results of $0.30 per share underscored the stability in our business. We have pro-actively managed the environment, exploiting available financial and operating levers, as evident from the resiliency in our results.

“More importantly, our retail franchise continued to grow, with increases in loan generation and customer base. We were the first in the market to emphasize superior customer experience through innovation, which seems to be in everyone else’s vocabulary now.

“As part of our continuing leadership in bringing innovative customer facing solutions to Puerto Rico, Oriental released a new and re-designed version of our mobile banking app. We also finished deploying deposit taking capabilities in all 47 on premise ATMs. We are highly encouraged with customer adoption levels and feedback.

“We continue to be committed to delivering stable financial results in line with the range discussed at the beginning of the year.”

2Q17 Income Statement Highlights

The following compares data for the second quarter 2017 to the first quarter 2017, unless otherwise noted.

  • Interest Income
    • from Originated Loans, increased $1.5 million to $53.5 million due to higher yields from variable rate commercial loans.
    • from Acquired Loans, declined $1.9 million to $23.8 million reflecting continued pay downs and lower cost recoveries.
    • from Securities, increased $0.2 million to $8.7 million from higher yields on cash balances.
  • Interest Expense declined $1.2 million to $10.4 million, primarily due to a full quarter impact of the March 2017 repayment of a 4.78% $232.0 million repurchase agreement.
  • Total Provision for Loan and Lease Losses increased $8.9 million to $26.5 million. This included the previously mentioned loss of $4.3 million on the sale of a municipality loan, an additional provision of $5.9 million for remaining loans to four other municipalities, and $2.3 million in recoveries on auto and consumer loans.
  • Core Net Interest Margin (excluding cost recoveries) expanded to 5.12% from 5.01% primarily due to lower borrowing balances and costs.
  • Total Banking and Wealth Management Revenues increased $0.5 million to $17.9 million, with increases in wealth management fees and in mortgage banking from servicing asset valuation and higher loan production.
  • Other Non-Interest Income reflected the previously mentioned $6.9 million gain on the sale of securities. In 1Q17, there was a $1.4 million gain related to the final outcome of terminating the FDIC shared-loss agreement.
  • Total Non-Interest Expenses increased $1.1 million to $52.8 million. This was primarily due to costs associated with consolidating office space, partially offset by lower credit expenses.
  • Income Tax declined $5.2 million to $4.0 million. The reduction reflects the new 2017 estimated tax rate as a result of a higher proportion of exempt income, including the gain on sale of MBS.

June 30, 2017 Balance Sheet Highlights

The following compares data at June 30, 2017 to March 31, 2017, unless otherwise noted.

  • Total Loans Net increased $2.2 million to $4.09 billion. New retail generation rose to $174.1 million, with growth in consumer and mortgage loans, partially offset by a decline in auto. Commercial loan generation expanded to $80.4 million with the closing of new small business and middle market loans.
  • Total Investments declined $173.9 million to $1.22 billion due to the previously mentioned MBS sale as well as prepayments.
  • Customer Deposits declined $128.1 million to $4.01 billion, largely the result of a decision not to retain a high cost corporate and a government client.
  • Total Borrowings declined $45.1 million to $627.3 million due to the previously mentioned unwinding of a repurchase agreement in 2Q17.
  • Total Stockholders’ Equity increased $7.5 million to $939.0 million primarily due to increases in retained earnings.

Credit Quality Highlights

The following compares data at June 30, 2017 to March 31, 2017, unless otherwise noted.

  • Net Charge-Off Rate increased 39 basis points to 1.79%. This reflected an increase for commercial loans with the sale of the municipality loan, partially offset by reductions in all retail loan categories. The auto and consumer loan net charge-off rate benefited from previously mentioned recoveries.
  • Early Delinquency Rate increased 10 basis points to 3.52% due to increases in auto and mortgage lending, partially offset by improvements in consumer and commercial lending. Total Delinquency Rate declined 3 basis points to 6.31%, reflecting improvements in mortgage and consumer lending, partially offset by increases in auto and commercial lending.
  • Non-Performing Loans remained relatively stable at 3.16% with declines in the mortgage and auto lending non-performing loan rates offset by increases in the commercial and consumer lending non-performing loan rates.
  • Allowance for Loan and Lease Losses increased $9.2 million to $69.7 million due to originated loan growth and the previously mentioned allowance for loans to municipalities.

Capital Position

The following compares data at June 30, 2017 to March 31, 2017, unless otherwise noted.

Capital continued to build and remains significantly above regulatory requirements for a well-capitalized institution.

  • Tangible Common Equity to Total Tangible Assets at 11.09% increased 43 basis points from 1Q17 and 117 basis points year over year, to the highest level in five quarters.
  • Tangible Book Value per Common Share at $15.51 increased 1.2% from 1Q17 and 3.7% year over year to the highest level in five quarters.
  • Common Equity Tier 1 Capital Ratio (using Basel III methodology) at 14.66% increased 36 basis points from 1Q17 and 202 basis points year over year to the highest level in five quarters.
  • Total Risk-Based Capital Ratio at 20.42% increased 37 basis points from 1Q17 and 242 basis points year over year to the highest level in five quarters.

Conference Call

A conference call to discuss OFG’s results for the second quarter 2017, outlook and related matters will be held today, Friday, July 21, 2017 at 10:00 AM Eastern Time. The call will be accessible live via a webcast on OFG’s Investor Relations website at www.ofgbancorp.com. A webcast replay will be available shortly thereafter. Access the webcast link in advance to download any necessary software.

Financial Supplement

OFG’s Financial Supplement, with full financial tables for the quarter ended June 30, 2017, can be found on the Webcasts, Presentations & Other Files page, on OFG’s Investor Relations website at www.ofgbancorp.com.

Non-GAAP Financial Measures

In addition to our financial information presented in accordance with GAAP, management uses certain “non-GAAP financial measures” within the meaning of the SEC Regulation G, to clarify and enhance understanding of past performance and prospects for the future. See Tables 9-1 and 9-2 in OFG’s above-mentioned Financial Supplement for reconciliation of GAAP to non-GAAP Measures and Calculations.

Forward Looking Statements

The information included in this document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations and involve certain risks and uncertainties that may cause actual results to differ materially from those expressed in the forward-looking statements.

Factors that might cause such a difference include, but are not limited to (i) the rate of growth in the economy and employment levels, as well as general business and economic conditions; (ii) changes in interest rates, as well as the magnitude of such changes; (iii) a credit default by the government of Puerto Rico; (iv) the fiscal and monetary policies of the federal government and its agencies; (v) changes in federal bank regulatory and supervisory policies, including required levels of capital; (vi) the relative strength or weakness of the consumer and commercial credit sectors and of the real estate market in Puerto Rico; (vii) the performance of the stock and bond markets; (viii) competition in the financial services industry; and (ix) possible legislative, tax or regulatory changes.

For a discussion of such factors and certain risks and uncertainties to which OFG is subject, see OFG’s annual report on Form 10-K for the year ended December 31, 2016, as well as its other filings with the U.S. Securities and Exchange Commission. Other than to the extent required by applicable law, including the requirements of applicable securities laws, OFG assumes no obligation to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements.

About OFG Bancorp

Now in its 53rd year in business, OFG Bancorp is a diversified financial holding company that operates under U.S. and Puerto Rico banking laws and regulations. Its three principal subsidiaries, Oriental Bank, Oriental Financial Services and Oriental Insurance, provide a wide range of retail and commercial banking, lending and wealth management products, services and technology, primarily in Puerto Rico, through 48 financial centers. Investor information can be found at www.ofgbancorp.com.

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